By Laura MacInnis
GENEVA, Jan 28 (Reuters) - Australia and its farm trade allies called on Brussels on Wednesday to repeal its decision to offer subsidies for dairy products leaving the European Union.
Trade ambassadors from the Cairns Group -- a coalition of 19 countries including Brazil, New Zealand, South Africa, Canada and Indonesia -- said the EU's move to protect its farmers could in fact prolong the world's economic trouble.
"Increasing trade distorting measures and protectionism in a time of a crisis carries a very high price," they said in a joint statement circulated in Geneva, where the World Trade Organisation (WTO) has its headquarters.
"The reintroduction of export subsidies at this time ... is likely to drive international prices down to artificially low levels and, at the very least, prolong the current downturn."
Brussels last week announced it would re-introduce export subsidies on butter, cheese, and whole and skimmed milk powder that had been suspended since 2007 "in response to the serious situation on the EU dairy market, caused by a recent sharp fall in producer prices".
WTO Director-General Pascal Lamy on Tuesday issued a report to his organisation's 153 member states telling countries to resist the impulse to institute protectionist measures during the economic and financial storm.
The Cairns Group, whose members have low farm subsidies and want to open up agricultural markets worldwide, said the EU's efforts to shield its farmers from market forces were unfair.
"It is of particular concern that farmers in many developing countries, which cannot afford to engage in subsidy wars, stand to suffer most from increased distortions in world agricultural markets," they said. "This is not the leadership we require from key economies at this point in time."
The tool kit countries can use to protect farmers from price swings or market implosions has emerged as one of the trickiest topics in long-running negotiations over a global free trade accord known as the Doha round.
At the last high-level push for a deal, in July, India dug its heels over a "special safeguard mechanism" that would allow it to cushion its farmers from crises, meeting resistance from the United States and others who want to repeal such commercial barriers to spur more reliable trade flows.
The European Union has been one of the most vocal supporters of a new WTO accord despite reluctance from some of its member countries, including France, to expose protected agricultural markets to more foreign competition.
Talks are resuming on Wednesday at the WTO's headquarters over the treatment of manufactured goods under a Doha accord, and trade ministers are expected to discuss prospects for a deal on the sidelines of the World Economic Forum in Davos this week.
In their statement, the Cairns Group ambassadors said they were "ready to quickly and constructively re-engage in order to secure modalities which fully meet the Doha mandate and advance our objective for a fair and market-oriented agricultural trading system". Modalities means "agreement" in trade lingo.
The Cairns Group is composed of Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Pakistan, Paraguay, Peru, the Philippines, South Africa, Thailand and Uruguay.